Judge Turns Away Principal Revenue Sharing Case Class Action Bid

Faced with overseeing a class action lawsuit that could have represented as many as 57,000 401(k) plans at the Principal Financial Group, a federal judge in Iowa has refused to certify the plaintiffs as a class.

U.S. District Judge John A. Jarvey of the U.S. District Court for the Southern District of Iowa ruled that while the proposed class was big enough to meet legal requirements, whether Principal was a fiduciary to each plan and the details of plan designs differed from client to client.

Jarvey found that the fund options offered to plan sponsors varied as did the use and delivery of Principal’s marketing materials and the amount of revenue sharing fees. Jarvey cited deposition testimony from Principal executives in which the executives asserted Principal varied its plan template from client to client and that funds depended on a number of factors, including the size, sophistication, and needs of each employer. Typically, class action members must base their claims on common questions of fact or law.

Plaintiff Joseph Ruppert sought to represent a nationwide class of Principal 401(k) plans in which Principal had revenue sharing agreements with the mutual funds offered under these plans (see Plan Sponsor Sues Principal over 401(k) Fund Revenue Sharing). Ruppert alleged that Principal was a fiduciary to the plans and that Principal used a business model/template that provided for common ways in dealing with the plans at issue.

Jarvey said Ruppert had estimated the class would consist of 24,814 401(k) plans, but Principal argued the proposed class would include 57,000 plans.

Ruppert sued on behalf of all retirement plans for which Principal was the service provider and for which it received revenue sharing “kickbacks” from mutual funds. Ruppert charged Principal had committed an Employee Retirement Income Security Act (ERISA) fiduciary breach by compensating itself with plan assets through its arrangement with the mutual funds, and by not adequately disclosing these arrangements.